Renter setting up LLC at private contractor?

Question

BP-I am currently house hacking my first property (renting by the room in a townhome) and have a new tenant moving in next week. He just informed me today that he is setting up an LLC to be a consultant/private contractor for work. The lease agreement (obtained from a fellow house hacker in town) states the following (which said tenant agrees with all terms):

• USE OF PREMISES. No part of the Premises shall be used at any time during the term of this Colorado Lease Agreement by Tenant for the purpose of carrying on any business, profession, or trade of any kind.

Is this something I need to forbade/is there any risk associated with him setting up his LLC as a tenant? On the surface, I don't see any major problems with allowing him to be employed as a private contractor. I don't believe he will be carrying out his business from my house, but just working for a company that will only hire him as a contractor and know it is common to set up an LLC. Am I missing something?

Jeff Willis · Answer

I think the issue is: Will he be conductin business from the address (i.e. seeing clients,etc.) or is just a corporate status.

If he is just forming a LLC to work as a consultant/contractor, that is just a legal status and you would be hard pressed to enforce that clause, and I don't see why you would want to.

An example. Your tenant forms an LLC for tax reasons and legal protection reasons and is a consultant that provides management services to companies. He goes to the company to provide the services. Since he does not need an office, he gets his business mail at the residence.

By the strictest sense, you could say he conducting a business out the residence, but I don't believe that is what the clause was intended for.

I personally do not see an issue as long as clients are not being serviced at the residence.

Account Closed · Answer

@Jeff Willis great, thanks Jeff! That is how I was viewing it as well! Wanted second opinion from seasoned investors.